Domino's Demolishes Competition With 3rd-Quarter Performance

Are investors expecting too much of Domino's?

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Oct 17, 2017
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Domino’s Pizza (DPZ, Financial), the largest pizza delivery chain in the U.S., reported better-than-expected third quarter profit and sales on Oct. 12. But the stock was down during early morning trading Friday as comparable-store sales declined to 8.4% compared to the 13.8% growth the company reported last year.

But despite the market’s early reaction to its third-quarter sales, Domino’s has been a great performer, with comparable-store sales now having increased for 26 quarters in a row in the U.S., helping the stock price to rise by more than 31% in the last 12 months. Revenue was up 13.6% during the quarter while net income increased by 19.3% compared to last year.

"The third quarter was an excellent example of us simply continuing to do what we do best: executing on our long-term strategy, relying upon our strong fundamentals and aligning with our outstanding U.S. and international operators to turn in another quarter of phenomenal results," said J. Patrick Doyle, Domino's president and CEO. "The momentum behind this business continues to amaze me, proving once again that our domestic and international franchisees are second to none."

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Domino’s has not only increased comparable store sales at a strong pace over the years, but the company has also been busy increasing its store penetration around the world. During the third quarter, net store growth was 217, with 53 net new domestic stores and 164 net new stores internationally.

Domino's has been opening more than 1,000 stores globally for the last several years, and third-quarter numbers show that the company is far from running out of breath as far as store openings are concerned. The pizza chain now has 14,434 stores globally, an increase of 623 stores from what it had by the end of 2016.

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Source: Domino’s Annual Report 2016

The combination of positive same-store sales for more than six years in the U.S., and steady growth of store count, has helped the company keep expanding its revenues. In the first nine months of the current fiscal, Domino’s reported net revenues of $1.896 billion compared to $1.653 billion last year for a growth rate of 14.7%.

Considering the state of the U.S. economy and the competition in the restaurant industry, achieving 26 quarters of same-store sales increase shows that Domino’s sits in the industry’s sweet spot.

The problems plaguing its competition in the food space have clearly helped the company in a big way. Case in point: Chipotle (CMG, Financial), which was growing at a furious pace but has already fallen out of favor due to food safety issues that seriously damaged its long-term brand image. Meanwhile, the burger brands are already tagged with the “not so healthy” label by the current generation, which has allowed Domino’s to expand its reach in the U.S. market in the last several years; and it will allow the pizza giant to keep expanding over the next several years as well.

Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.